Get ready for Making Tax Digital for income tax

Making Tax Digital, this time for income tax self-assessment (MTD ITSA), will come into effect from 6 April 2024 – one year later than planned.

We say this with a degree of caution, despite it being written into legislation published in September 2021 – the same time the delay was announced.

At the time, Lucy Frazer, financial secretary to the Treasury, said COVID-19 was behind the delay and “it’s critical everyone has enough time to prepare”.

There are more than 37 months before MTD ITSA becomes mandatory, which should be plenty of time to gear up for this tax change.

When it does arrive, it will spell the end of tax returns submitted through self-assessment, predominantly on or before midnight on 31 January every year.

Instead, a new set of rules will kick in with digitalisation at the core. VAT-registered businesses will be familiar with this process, having been obligated with MTD for VAT rules since 2019.

The self-employed & landlords

MTD ITSA will affect self-employed businesses and landlords with annual income of £10,000 or more. General partnerships are excluded, for now.

All unincorporated businesses mandated under MTD ITSA will need to file quarterly returns on or before 5 August, 5 November, 5 February, and 5 May each year.

For example, the first MTD ITSA submission will be for the quarter which runs from 6 April to 5 July 2024. This must be with HMRC by Sunday 5 August 2024.

Quarterly MTD ITSA submissions will consist of total sales and total expenses arising each three months, thought to be similar to the current format of a self-assessment tax return.

We will make any accounting adjustments in your final submission of the tax year, before submitting this end-of-period statement on or before 31 January following the end of the tax year.

General partnerships

Most unincorporated business partnerships with business or property income, and only have individuals as partners, will have to abide by the MTD ITSA rules from 6 April 2025.

The date at which all other partnerships, such as those with corporate partners and limited liability partnerships, will be required to join MTD ITSA has yet to be revealed.

This deferral is similar to the one which applied to VAT-registered firms with complex requirements during the rollout of MTD for VAT from 1 April 2019, although they joined six months later.

Digital record-keeping

Self-employed business owners or landlords can voluntarily use software to keep business records digitally and send income tax updates to HMRC instead of filing a self-assessment tax return.

Having gone through MTD for VAT, we know the benefits of keeping digital records and are already supporting clients with their software needs to help them comply with MTD legislation.

Soon it will be the turn of business owners and landlords to maintain digital records and submit digital tax returns. We are perfectly positioned to support you and your business before April 2024.

For more information, contact us on info@stapletonsaccountants.co.uk or call 01363 773191.